The “Buy and Bill” model is a widely used reimbursement mechanism in the United States healthcare system for high-cost medications administered by a healthcare professional. This process is common for injectable and infused drugs, such as chemotherapy agents, biologics, and specialty pharmaceuticals. It places the financial responsibility for purchasing and holding drug inventory directly onto the healthcare provider (e.g., a physician’s office or hospital outpatient department). The provider must outlay the capital to secure the medication before treatment and then seeks payment from the patient’s insurance plan after administration.
Core Mechanics of the Buy and Bill Process
The buy and bill process begins when a healthcare provider orders and purchases medication from a distributor or manufacturer. This inventory is stored on-site, requiring specific handling and inventory management, especially for temperature-sensitive biologics. The provider maintains this stock until a patient requires treatment.
Once the drug is administered, the provider initiates the “bill” phase by submitting a claim to the patient’s insurance payer. The claim requests reimbursement for two distinct components: the cost of the drug and a separate fee for the professional service of administration. The provider pays for the product upfront and waits for the payer to compensate them later. This delay between purchase and final reimbursement is a defining feature of the model.
Financial Dynamics for Healthcare Providers
Purchasing and maintaining drug inventory requires a significant commitment of working capital. Practices dealing with expensive specialty drugs must manage substantial cash tied up in stockpiled medications, often for weeks or months before a claim is paid. This lag in cash flow presents an operational challenge, particularly for smaller independent clinics with limited financial reserves.
A key financial component is the “spread,” the difference between the provider’s acquisition cost and the final reimbursement amount received from the payer. This spread covers administrative overhead, storage costs, and the financial risk taken on by the practice. Providers face the risk of claim denials or partial payments, which can result in the provider being “underwater,” meaning reimbursement does not cover the original purchase price. Effective inventory management and meticulous billing practices are necessary to mitigate this financial exposure.
Payer Reimbursement Methodology
Payers establish the reimbursement rate for the drug component of the claim based on a structured methodology. For government programs like Medicare Part B, payment for provider-administered drugs is based on the Average Sales Price (ASP) plus a statutory percentage add-on, typically six percent. The ASP reflects the volume-weighted average of manufacturer sales prices to all purchasers, net of discounts and rebates.
Manufacturers report this pricing data to the Centers for Medicare and Medicaid Services (CMS) quarterly, creating a two-quarter lag between the sales data and the final reimbursement rate. To identify the specific medication, providers must use Healthcare Common Procedure Coding System (HCPCS) Level II codes. Commercial payers frequently use the Medicare ASP methodology as a benchmark, though their specific contracted rates and add-on percentages can vary significantly.
Comparison to Alternative Drug Delivery Models
The buy and bill model can be contrasted with alternative drug delivery methods that shift the financial risk away from the healthcare provider.
White Bagging
One such method is “White Bagging,” where a patient’s specialty pharmacy dispenses a drug specifically for that patient and ships it directly to the physician’s office for administration. In this scenario, the specialty pharmacy bills the patient’s pharmacy benefit, and the provider only bills the medical benefit for the administration fee.
Brown Bagging
Another alternative is “Brown Bagging,” which involves the patient obtaining the drug from a specialty pharmacy and physically bringing it to the provider’s office for their treatment appointment.
In both bagging models, the provider avoids the upfront cost and inventory management burden associated with purchasing the drug. The choice between buy and bill and a bagging model often depends on payer mandates and the provider’s willingness to assume the financial and logistical responsibility for the drug supply.